2019 Full Year Results - Asaleo Care · •Libra brand investment: • New major Libra advertising campaign for 2020 building on success of #Bloodnormal • Continued investment in

#bloodnormal

2019 Full Year Results

Sid Takla

CEO & Managing Director

Campbell Richards

Chief Financial Officer

19 February 2020

#bloodnormal#bloodnormal

2

Important Notice and Disclaimer

This presentation has been prepared by Asaleo Care Limited ACN 154 461 300 (Company). This presentation contains summary information about the Company, its subsidiaries and the entities, businesses and assets they own and operate (Group) and their activitiescurrent as at 19 February 2020 unless otherwise stated and the information remains subject to change without notice. This presentation contains general background information and does not purport to be complete. It has been prepared by the Company with due carebut no representation or warranty, express or implied, is provided in relation to the accuracy, reliability, fairness or completeness of the information, opinions or conclusions in this presentation.

Not an offer or financial product advice: The Company is not licensed to provide financial product advice. This presentation is not and should not be considered, and does not contain or purport to contain, an offer or an invitation to sell, or a solicitation of an offer to buy,directly or indirectly, in any member of the Group or any other financial products (Securities). This presentation is for information purposes only.

Financial data: All dollar values are in Australian dollars ($ or A$). Any financial data in this presentation is unaudited.

Effect of rounding: A number of figures, amounts, percentages, estimates, calculations of value and fractions in this presentation are subject to the effect of rounding. Accordingly, the actual calculation of these figures may differ from the figures set out in thispresentation.

Underlying financial information: As a result of non-recurring income and expenditure in FY19 and FY18, underlying financial information is included in this presentation. A reconciliation between the Underlying financial information and Asaleo Care Group’s statutoryfinancial information is included within the Annual Financial Report. The statutory results in this Report are based on the Annual Financial Report which is audited by PwC.

Past performance: The operating and historical financial information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of the Company's views on its future performance or condition. Actual resultscould differ materially from those referred to in this presentation. You should note that past performance of the Group is not and cannot be relied upon as an indicator of (and provides no guidance as to) future Group performance.

Future performance: This presentation contains certain "forward-looking statements". The words "expect", "anticipate", "estimate", "intend", "believe", "guidance", “propose”, “goals”, “targets”, “aims”, “outlook”, “forecasts”, "should", "could", “would”, "may", "will","predict", "plan" and other similar expressions are intended to identify forward-looking statements. Any indications of, and guidance on, future operating performance, earnings and financial position and performance are also forward-looking statements. Forward-lookingstatements in this presentation include statements regarding the Company’s future financial performance, growth options, strategies and new products . Forward-looking statements, opinions and estimates provided in this presentation are based on assumptions andcontingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions.

Forward-looking statements, including projections, guidance on future operations, earnings and estimates (if any), are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. No representation is given that theassumptions upon which forward looking statements may be based are reasonable. This presentation contains statements that are subject to risk factors associated with the Group's industry. These forward-looking statements may be affected by a range of variables whichcould cause actual results or trends to differ materially, including but not limited to earnings, capital expenditure, cash flow and capital structure risks and general business risks. No representation, warranty or assurance (express or implied) is given or made in relation toany forward-looking statement by any person (including the Company). In particular, but without limitation, no representation, warranty or assurance (express or implied) is given that the occurrence of the events expressed or implied in any forward-looking statements inthis presentation will actually occur. Actual operations, results, performance or achievement may vary materially from any projections and forward-looking statements and the assumptions on which those statements are based. Any forward-looking statements in thispresentation speak only as of the date of this presentation. Subject to any continuing obligations under applicable law, the Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements in this presentation toreflect any change in expectations in relation to any forward-looking statements or any change in events, conditions or circumstances on which any such statement is based. Nothing in this presentation will under any circumstances create an implication that there has beenno change in the affairs of the Group since the date of this presentation.

Non-IFRS terms: This presentation contains certain financial data that has not been prepared in accordance with a definition prescribed by Australian Accounting Standards or International Financial Reporting Standards, including the following measures: EBITDA, EBITDAmargin, EBIT, maintenance capital expenditure and growth capital expenditure. Because these measures lack a prescribed definition, they may not be comparable to similarly titled measures presented by other companies, and nor should they be considered as analternative to financial measures calculated in accordance with Australian Accounting Standards and International Financial Reporting Standards. Although the Company believes that these non-IFRS terms provide useful information to recipients in measuring the financialperformance and the condition of the business, recipients are cautioned not to place undue reliance on such measures.

No liability: The Company has prepared this presentation based on information available to it at the time of preparation, from sources believed to be reliable and subject to the qualifications in this document. To the maximum extent permitted by law, the Company and itsaffiliates, related bodies corporate (as that term is defined in the Corporations Act), shareholders, directors, employees, officers, representatives, agents, partners, consultants and advisers accept no responsibility or liability for the contents of this presentation and makeno recommendations or warranties. No representation or warranty, express or implied, is made as to the fairness, accuracy, adequacy, validity, correctness or completeness of the information, opinions and conclusions contained in this presentation. To the maximumextent permitted by law, the Group does not accept any responsibility or liability including, without limitation, any liability arising from fault or negligence on the part of any person, for any loss whatever arising from the use of the information in this presentation or itscontents or otherwise arising in connection with it.

3

FY19 Highlights

• Return to revenue growth for the first time in 5 years - up 3.0%

• Growth across all key brands

• Step change in brand investment

• Commenced launch of strong NPD pipeline

• Underlying EBITDA of $82.4m in line with guidance

• Disciplined capital management

• Significant debt reduction from proceeds on sale of Australian Consumer Tissue

• Completed (on target) major capital investment in NZ manufacturing

• Return to positive cash generation in 2H19

(* All financials are for continuing operations only)

4

57% 43%53% 47%

Asaleo Care Business by Segment

REVENUE EBITDA

B2B Retail

B2B

Australia & New Zealand

Incontinence

Healthcare

Professional

Hygiene

Retail

Australia & New Zealand New Zealand

Feminine

Care

Incontinence

RetailConsumer Tissue Baby Care Pacific Island

5

• TENA Incontinence Healthcare revenue up 3% driven by strong growth in the community channel and improved product mix

• Tork Professional Hygiene (TPH) revenue up 1% (up 3.2% v pcp in H2). Continued focus on proprietary ‘Hero systems’ driving margin growth

• B2B margin adversely impacted by increased energy and insurance costs in NZ, production shuts to install new converting machine, FX and investment in incremental B2B Sales resources

• Pulp prices have eased although minimal benefit in 2019. Despite an FX headwind, we do expect some pulp price benefit in 2020

B2B – NSV $M Hero Systems - % of Professional Hygiene Sales

Business to Business (B2B) Segment PerformanceContinued growth in proprietary systems

93.4 96.0 97.4 104.0 106.2 106.4

102.8 105.8 108.4 111.5 112.0 115.2

2014 2015 2016 2017 2018 2019

H1 H2

27%29% 30%

32%34%

36%

2014 2015 2016 2017 2018 2019

B2B$M

Underlying

FY19

Underlying

FY18

Lease

Adjustment

Underlying

Restated FY18 Δ %

Revenue 221.6 218.2 0.0 218.2 1.6%

EBITDA 46.8 45.1 4.1 49.2 -4.9%

EBITDA % 21.1% 20.7% 22.5%

6

New Converting Line Kawerau, NZ TENA Identifi™

Tork Peakserve™ Tork Coreless

B2B – Investment in Growth Initiatives

• Product from our new $23m converting line in New Zealand is now in market. Investment is delivering improved cost and quality and a wider product range that will enable growth

• Tork Peakserve™ hand towel innovation launched in Q4 2019. Designed for high traffic facilities, with our first installations at Eden Park Stadium in NZ and the new Sydney Zoo

• Tork Coreless toilet paper innovation launched in Q4 2019; less run outs, less refilling, less storage, less waste.

• We have completed our first large scale installation of TENA Identifi™, a sensor-based incontinence assessment tool that improves individualised care. Several commercial trials in progress

• Investment in B2B Sales resources to drive growth

7

• Strong top line growth of 4.7%

• Consumer Tissue New Zealand revenue up 17%, driven by NPD and trade investment

• Incontinence Retail (TENA) revenue up 6%, through new product launches, improved ranging and new TVC campaign

• Branded Feminine care (Libra) up 1.0%. Increased brand investment driving growth

• Incremental ranging achieved across categories

• EBITDA Margins suppressed due to:

• Significant increase in brand investment:

− advertising and promotion up 49%

− additional shopper activity to support new product launches

− incremental sales and marketing resources to drive growth

• Higher manufacturing input costs:

− energy, property insurance & FX

Retail Segment PerformanceGrowth across all key brands

Retail NSV - $M

116.2 116.5 103.8 103.2 91.4 95.5

122.1 112.4 113.4 96.7 98.2 103.1

2014 2015 2016 2017 2018 2019

H1 H2

Retail$M

Underlying

FY19

Underlying

FY18

Lease

Adjustment

Underlying

Restated FY18 Δ %

Revenue 198.6 189.6 0.0 189.6 4.7%

EBITDA 35.6 36.4 6.9 43.3 -17.8%

EBITDA % 17.9% 19.2% 22.8%

8

• TENA brand investment:

• TENA Carnivale TVC campaign to continue support for TENA Discreet Ultra Thin Pads

• New TENA Partnership with Prostate Cancer Foundation to be activated in AU & NZ

• In-store shopper activity to support NPD

• Libra brand investment:

• New major Libra advertising campaign for 2020 building on success of #Bloodnormal

• Continued investment in Libra in-store activation promoting Australian-made and ‘Share the Dignity’ collaboration

• Consumer Tissue NZ brand investment:

• Sorbent, Purex and Handee above-the-line advertising support & in-store activations

Retail – Increased Brand Investment to support Growth Initiatives

Feminine Care (Libra)

Partnered with “Share the Dignity” in Woolworths

New Libra campaign in development for 2020

Incontinence Care (TENA)

Continue successful TENA CarnivaleTV advertising to support

new Discreet ultra-thin pads

Consumer Tissue (NZ)

Purex made in Kawerau TV

New Sorbent Silky White NPD and advertising support

Handee above the line support

9

Continued focus on safety, reducing injuries

Key Safety Metrics

• Continued focus and investment in achieving our vision – ‘safe and healthy every day, everyone, in every way’ -over 21% of maintenance CAPEX invested in safety initiatives in the last 24 months

• Major projects including relocation of napkin line to Springvale, Head Office move to Springvale, installation of new Kawerau industrial converting line and relocation of Victorian Distribution Centre, completed without any Reportable Injuries

• Our state-of-the-art fleet of converting assets in our Tissue factory in NZ have all been installed over the last 5 years and are designed with a much higher safety standard

6.0

11.4

6.2 6.5

4.9

9.4

16.6

11.111.6

8.6

6.9

10.7

11.9

13.6

5.9

2015 2016 2017 2018 2019

LTIFR TIFR Severity Rate

• LTIFR: Lost Time Injury Frequency Rate (no. of lost time injuries per million hours worked)• TIFR: Lost Time and Medical Treatment injuries per million hours worked• Severity Rate: days lost per lost time injury (Includes employees and contractors)

10

• New Kawerau, NZ converting equipment to improve efficiency and reduce waste

• NZ Treasures Care nappies – made in NZ , designed to reduce environmental impact of disposable nappies: made with pulp from FSC certified forests, 80% renewable energy, 100% plant-based nappy cover, packaged in 51% sugarcane

• Environmental Product Declarations for Tork and NZ products – Handee, Sorbent, Purex – measures environmental impact of products over the lifecycle

Committed to:

• Eliminate Modern Slavery within our supply chain – Preliminary Statement released

• Responsible Forestry and Fibre Sourcing Policy, no Deforestation, No Exploitation, No Drained Tropical Peatland

• 100% recyclability of our packaging by 2025 -Partner with Soft Plastics Recycling

SustainabilityLiving our purpose of Care, Comfort and Confidence every day

Reducing the impact of disposable nappies

First in our industry to commit to Tropical Peatland Free

Committed to 28% reduction in greenhouse gases - Scope 1 and 2 - by 2025

Preliminary Modern Slavery Statement issued today

11

#bloodnormal

Financials Full Year Results 2019

Campbell Richards

Chief Financial Officer

19 February 2020 #bloodnormal

12

• Full year revenue growth driven by both Retail and B2B. Significant investment in promotional trade spend to drive volume and protect market share

• Whilst pulp costs remained largely flat on prior year, cost of sales impacted by higher insurance and energy costs and adverse FX movements

• Distribution costs higher due to increased sales volume

• SM&A costs higher due to increased spend on Advertising & Promotion and investment in incremental resources to drive sales growth

• Lower finance costs due to debt reduction and lower cost of debt

Asaleo Care Financial Performance

Asaleo Care$M

Underlying

FY19

Underlying

FY18Lease

Adjustment

Underlying

Restated FY18Δ %

Revenue from continuing operations 420.2 407.8 0.0 407.8 3.0%

Cost of Sales (244.7) (233.0) 3.1 (229.9) 6.4%

Gross profit 175.5 174.8 3.1 177.9 -1.3%

Distribution expenses (38.5) (42.1) 6.5 (35.6) 8.1%

Sales, Marketing & Admin (54.7) (51.4) 1.4 (50.0) 9.4%

Other Income/expenses 0.1 0.2 0.0 0.2 -50.0%

EBITDA 82.4 81.5 11.0 92.5 -10.9%

Depreciation and Amortisation (25.5) (15.7) (10.0) (25.7) -0.8%

EBIT 56.9 65.8 1.0 66.8 -14.8%

Net Finance Costs (12.0) (14.8) (1.0) (15.8) -24.1%

Underlying NPBT 44.9 51.0 0.0 51.0 -12.0%

Income Tax Expense (13.2) (14.0) 0.0 (14.0) -5.7%

Underlying NPAT 31.7 37.0 0.0 37.0 -14.3%

Non-recurring (expenses)/benefit (4.5) (46.6) 0.0 (46.6) -90.3%

Income tax benefit/(expense) non-recurring 1.3 10.4 0.0 10.4 -87.9%

Statutory NPAT Continuing Operations 28.5 0.8 0.0 0.8 >100.0%

Discontinued Operations (6.4) (109.5) 0.0 (109.5) -94.2%

Statutory (NLAT)/NPAT 22.1 (108.7) 0.0 (108.7) >100.0%

13

Underlying EBITDA movementFY18 (lease accounting restated) v FY19

Like-for-like Underlying EBITDA down 10.9% due to:

• Significant increase in brand investment

• 49% increase in A&P

• Shopper activity for new launches

• Incremental S&M resources

• Higher production input costs:

• Energy in NZ

• Property insurance

• FX, noting pulp was flat v prior year

• Partially offset by:

• Improved sales volume and mix

• Renegotiated Essity license agreement (TMTLA) post divestment

14

Continuing Capital Expenditure $m Depreciation $mGrowth Capital Expenditure• Investment in new converting

equipment at our NZ Tissue factory, which was commissioned in 2H19.

• Investment in our Feminine Care facility to locally manufacture new TENA Discreet ultra-thin pads

Depreciation:• Continuing operations depreciation is

relatively consistent, with an average annual charge of $15.3m

• AASB 16: Lease Amortisation now included in overall depreciation

Capital Expenditure and DepreciationMajor investment in new NZ converting asset

11.3 13.0 15.0 10.9 11.0

3.7 4.7

8.5

4.2

21.8

2015 2016 2017 2018 2019

Maintenance Growth

15.3 14.9 15.4 15.7 15.5

10.0

2015 2016 2017 2018 2019

Depreciation Lease Amortisation

15

Asaleo Care$M

FY19

Underlying NPAT 31.7

NZ manufacturing investment (4.5)

Tax Benefit 1.3

Statutory NPAT Continuing Operations 28.5

Proceeds from sale of Consumer Tissue Australia 180.0

Completion adjustment 6.1

Net assets sold (165.6)

Sale of business costs (8.8)

Discontinued operations (16.2)

Tax expense (1.9)

Total Discontinued Operations (6.4)

Statutory NPAT 22.1

Reconciliation of Underlying to Statutory NPAT

Non-Recurring Costs:

• NZ Manufacturing Investment: restructuring costs (redundancies and obsolete asset write-off) associated with the installation of the new rewinder in NZ

• Gain on Sale of Consumer Tissue Australia:

• Total gain on sale (FY18 & FY19) $6.1m

• FY 19 includes $3.4m receivable in relation to final completion adjustment. Environmental assessment for the Box Hill site still in progress, $0.16m provision based on preliminary assessment

Gain on Sale $11.7m

16

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Hardwood - RISI China Delivered PriceMarket• Global pulp inventory levels have

reduced resulting in stable to firming prices• Softwood prices are on the rise due to

unexpected mill downtime• New hardwood capacity on track for 2021• Uncertainty around implications to China

demand as a result of coronavirus

Asaleo Care• Overall pulp exposure reduced due to the

sale of Consumer Tissue Australia• Continue to source and use high quality FSC

certified pulp in all paper products manufactured

• 6-month lag of pulp pricing into COGS still applies

Indicative impact of US$ pulp price changes – a ~6 month lag from pulp purchase price being set to pricing reflected in Cost of Sales has been taken into consideration * Source: Risi,Inc. The price Asaleo Care pays is subject to commercial arrangements that impact price. Asaleo Care primarily sources Softwood from Canada and New Zealand and Hardwood from South America.

2019 full year pulp price in-line with 20182020 USD pulp price upside, partly offset by FX

2019

Actual Forecast

2015 2017 2018 20202016

USD

Pu

lpP

rice

Per

To

ne

17

Free Cash Flow (FCF)• Full year FCF deficit of -$39.4m• 2H19 Free Cash Flow generation of

$21.8m• Significant working capital payments

made during 1H19• Unwind FY18 working capital

initiatives• Retained Consumer Tissue

Australia net trade payables at date of sale

Cash Flow Applied to Capital Allocation:• Purchase of new converting machine in

NZ - launched in November.• Sale of business includes $180m of sale

proceeds plus $2.7m final sale adjustment

• Escrow deposit - receipt of funds back from escrow account after sale of Consumer Tissue Australia

Free Cash Flow (FCF) ($m) FCF Applied to Capital Allocation ($m)

Significant debt reduction with sale of Consumer Tissue Australia. Free Cash Flow in 2H19 of $21.8m

(81.5m)

18

Stronger Balance Sheet - lower debt and leverage ratio

Leverage Ratio*• Leverage ratio at 31 December 2019 is

1.95x (31 December 2018 3.25x)• Leverage ratio at the mid point of our

preferred range of 1.5 to 2.5x EBITDA

Net Debt Movement:• Decrease of $120.8m to $139.3m at

31 December 2019 (Dec-18: $260.1**)

Facilities• Consumer Tissue Australia sale

proceeds applied to reduce debt -total debt facilities reduced from $400m to $250m

• Number of lenders in the syndicated facility have reduced from 5 to 3

• *Leverage = Net Debt/Underlying EBITDA adjusted for lease benefit

• **Prior year Net Debt has been restated from $262.4 to $260.1 with the removal of $2.2m of accrued interest

Debt Maturity Profile ($m) Net Debt ($m) as at 31 December 2019

Total Facilities $250m

Drawn Debt $172.5m

Cash & Cash Equivalents $33.2m

Net Debt $139.3m

70.0

12.5

65.0

25.040.0

37.5

Facility A31-July-21

Facility B31-July-23

Facility C31-July-22

Series AGuaranteedSenior Notes26-June-25

Series BGuaranteedSenior Notes26-June-28

Drawn Available

19

Return to growth across all key shareholder metrics

Divestment of under-performing Australian Consumer Tissue business has enabled creation of shareholder value by:• allowing management to focus

on better performing businesses; and

• unlocking capital to allocate to assets generating higher returns

* Prior period impairment of Retail assets ($22.5m) has been added back to equity in FY19 and FY18. This amount has also been added back to FY18 NOPAT (included within ROIC calculation) and FY18 NPAT (included within ROE calculation)

Asaleo CareContinuing

FY19

Continuing

FY18

EPS 5.2cps 4.3cps

ROIC 10.7% 7.7%

ROE 13.9% 12.4%

Metric MethodologyContinuing

FY19

Continuing

FY18

EPS NPAT/Weighted average shares on issue $28.5m/543.1m shares $23.3m/543.1m shares

ROIC* Annualised NoPAT/Debt+Equity $36.9m/$344m $34.5m/$447.3m

ROE Annualised NPAT/Equity $28.5m/$204.6m $23.3m/$187.2m

19th February 2020

2020 Full Year Outlook

Sid Takla

CEO and Managing Director

21

Focus on Strategy Execution

22

FY20 Outlook

Underlying EBITDA Outlook for FY20 – $84m - $87m

Costs• Pulp USD pricing continuing to ease in H1 but expected

to rise in H2 FY20• Higher input costs due to energy, insurance and FX• Incremental Brand investment – A&P, shopper activity• Full year impact of stranded costs post divestment of

Consumer Tissue Australia• Cost benefits from new NZ asset installed late 2019

Revenue Growth• New Product launches in both Retail and B2B• Further increase in brand investment• Secured supply contract for Victorian Government

Feminine Care Schools initiative (4-year term)• Secured large Private Label contract in B2B Tissue

Capital Management• Application of Free Cashflow to continue to pay down

debt• Reinvest in the business for growth• Resume consistent payment of dividends

Free Cashflow• Free Cashflow will be positive in FY20 as significant cash

outflows related to Australian Consumer Tissue business in FY19 and the large capital investment in NZ manufacturing, will not be repeated

23

Summary

• Returned to revenue growth

• Completed sale of Consumer Tissue AU

• Healthy Balance Sheet with lower debt and

leverage ratio within desired range

• Ongoing investment in both Retail and B2B

• Return to dividend payments

• Continue to execute growth plans in 2020